How to Start a Daycare or Childcare Business in Colorado

How to Start a Daycare or Childcare Business in Colorado

Starting a daycare or childcare business in Colorado requires navigating licensing requirements, business formation, insurance, and regulatory compliance. This guide walks through the essential steps, costs, and timeline you'll need to launch legally and operate successfully in Colorado.

Is a Daycare License Required in Colorado?

Colorado requires a license for any childcare facility that cares for more than four unrelated children (or more than two unrelated children in a school-age program) outside the child's home. If you're operating a home-based daycare caring for four or fewer unrelated children, you may operate unlicensed, though regulations still apply. However, most childcare providers pursue licensure to remain competitive, accept subsidies, and give families confidence in compliance.

Licensing in Colorado is administered by the Colorado Department of Human Services (DHS), Office of Early Care and Learning (OECL). Licensed facilities must meet strict standards for staff ratios, physical space, health, safety, nutrition, and curriculum.

Step 1: Choose Your Business Structure

Before applying for a daycare license, decide on your legal business structure. The most common options are:

  • Sole Proprietorship: You operate the business as yourself. Simplest to start but offers no liability protection. Your personal assets are at risk if you're sued.
  • Limited Liability Company (LLC): Separates your personal assets from business liability. Costs $50 to file with the Colorado Secretary of State, plus a $25 annual Periodic Report fee. Recommended for most childcare providers.
  • Corporation: Offers strong liability protection but involves more paperwork and cost. File Articles of Incorporation with the Secretary of State for $50, plus a $25 annual Periodic Report.

For a daycare, an LLC is typically the best balance of protection and simplicity. If you're starting as a home-based provider caring for four or fewer children and want to keep costs minimal, a sole proprietorship is viable, but consider upgrading to an LLC once you grow.

Step 2: Form Your Business with the Colorado Secretary of State

If forming an LLC or corporation, file online with the Colorado Secretary of State at https://www.coloradosos.gov/pubs/business/fileAForm.html.

  • Choose a name: Your business name must include "LLC" or similar identifier. Check availability using the Business Entity Search.
  • File your Articles of Organization: Online filing costs $50 and processes instantly.
  • File annually: You'll file a Periodic Report each year in your entity's anniversary month. The fee is $25. You can file it starting two months before or up to two months after your anniversary month with no penalty.
  • Appoint a registered agent: Colorado requires you to name a registered agent (you can be your own) at a physical Colorado street address. As of July 1, 2025, the registered agent must have a valid Colorado driver's license or state ID, live in Colorado, or have a usual place of business there.

Online filings process in real time. You'll receive confirmation immediately after payment.

Step 3: Obtain Your Federal EIN

Apply for an Employer Identification Number (EIN) from the IRS at irs.gov. This is free and takes about 15 minutes online. You'll need your business name, address, and the structure you chose in Step 2. The EIN is essential for hiring employees, opening a business bank account, and filing taxes.

Step 4: Register for Colorado Taxes

Register with the Colorado Department of Revenue at tax.colorado.gov. You'll need:

  • Sales Tax License: Required if you charge parents directly for services (which you will). Apply at tax.colorado.gov/how-to-apply-for-a-colorado-sales-tax-license. Colorado's state sales tax is 2.9 percent; your local jurisdiction may add more. If you're in a home rule city (like Denver, Boulder, or Fort Collins), you'll also need to register with that city for local tax.
  • Income Tax Withholding: If you hire employees, register for state income tax withholding. Colorado's income tax rate is a flat 4.40 percent.
  • Unemployment Insurance: Register for Colorado unemployment insurance if you'll have employees.

Step 5: Apply for Colorado Daycare Licensing

This is the most involved step. Contact the Colorado Department of Human Services, Office of Early Care and Learning at cdhs.colorado.gov/oecl or call to request an application. The licensing process includes:

  • Facility inspection: Your space must meet minimum square footage per child (typically 35 square feet of usable floor space indoors; confirm current requirements). You'll need separate bathrooms, handwashing stations, safe storage for chemicals and hazardous materials, and age-appropriate furniture and equipment.
  • Background checks: You and any staff must pass state and federal background checks, including fingerprinting through the Colorado Bureau of Investigation. This costs money and takes 4 to 8 weeks.
  • Health screening: You and staff must provide proof of a current physical exam, immunizations, and tuberculosis screening.
  • Staff qualifications: Depending on your facility type and size, staff must meet education requirements (e.g., a high school diploma or equivalent, or completion of early childhood education coursework). Directors often need additional certification.
  • Curriculum and policies: You'll submit written policies for health, safety, discipline, parent communication, emergency procedures, and curriculum. Your curriculum must support development in language, math, science, social-emotional, and physical domains.
  • Health and safety documentation: Proof of first aid and CPR certification (required for directors and often for all staff). Documentation of fire safety equipment, emergency preparedness plans, and building safety inspections.

Licensing fees vary by facility type and size. Confirm the exact fee structure with OECL when you request the application.

Timeline: Expect 2 to 4 months from application to license, depending on how quickly you complete background checks and facility preparation.

Step 6: Secure Insurance

Childcare liability insurance is essential and, in most cases, required by parents and lenders. A general liability policy typically costs $800 to $2,000 per year depending on your facility size and location. Umbrella coverage adds another layer of protection. Contact insurance brokers who specialize in childcare (many exist) to compare quotes. Do not skip this step; a single incident without insurance can end your business.

Step 7: Set Up Your Business Bank Account and Accounting

Open a separate business bank account using your EIN. This keeps your business and personal finances separate, simplifies tax filing, and protects you if the IRS ever audits. Use accounting software (QuickBooks, FreshBooks, or Wave) to track revenue and expenses. This is critical for tax reporting and for identifying which pricing model is sustainable.

Step 8: Hire and Onboard Staff

If you plan to care for more than your license allows solo, hire staff. Each employee must:

  • Pass background checks (required by law).
  • Complete first aid and CPR training.
  • Have age-appropriate experience or education (per licensing rules).
  • Sign employee agreements.
  • Be enrolled in Colorado's unemployment insurance system.

You'll also need to withhold and pay federal and state payroll taxes, and maintain records for at least three years.

Step 9: Develop Policies and Curriculum

Before you open, create written policies for:

  • Hours of operation and enrollment procedures.
  • Tuition rates, payment terms, and cancellation policies.
  • Discipline and behavior guidance (corporal punishment is prohibited in Colorado childcare).
  • Parent communication and pickup procedures.
  • Health and illness policies (which illnesses require exclusion, medication administration).
  • Emergency preparedness (fire, weather, intruders).
  • Curriculum and developmental goals.

These aren't optional extras: they're licensing requirements, and they protect you and families by setting clear expectations.

Step 10: Get Ready to Open

Once licensed, you can accept enrollments. Market your facility to parents through your website, local parent groups, pediatrician referrals, and word of mouth. Keep up with continuing education (Colorado requires annual training hours for licensed staff), maintain licensing compliance, and regularly review your pricing to ensure it covers your costs and payroll.

Timeline and Costs Summary

Formation and Initial Setup (3 to 5 months):

  • Business formation (LLC): $50 to $100
  • EIN: Free
  • Tax registration: Free
  • Background checks and fingerprinting: $100 to $200 per person
  • First aid/CPR training: $100 to $300 per person
  • Facility inspection and preparation: $500 to $5,000+ (depends on whether you're converting a home or renting commercial space)
  • Insurance: $800 to $2,000 annually
  • Licensing fee (Colorado DHS): Varies; confirm with OECL

Ongoing Annual Costs:

  • Secretary of State Periodic Report: $25
  • Liability insurance: $800 to $2,000
  • Staff salaries: Your largest expense (varies widely)
  • Supplies, equipment, and utilities: $3,000 to $10,000+
  • Continuing education: $200 to $500

Common Mistakes to Avoid

  • Skipping the license if you think you're exempt: If you care for more than four unrelated children, you must be licensed. Operating illegally risks fines and closure.
  • Not securing liability insurance: One uninsured incident can wipe out your business. This is non-negotiable.
  • Underpricing your services: Many new childcare providers price too low to cover staff, supplies, and overhead. Understand your costs before setting rates.
  • Mixing personal and business finances: Commingling finances makes taxes harder and weakens liability protection. Use a separate business account.
  • Ignoring continuing education: Colorado requires ongoing staff training. Staying current improves quality, reduces liability, and is legally required.
  • Not documenting policies: Written policies protect you when disputes arise. Verbal agreements don't count.

Resources to Confirm Requirements

Disclaimer

This article is informational and does not constitute legal, tax, or business advice. Childcare licensing regulations are subject to change, and requirements vary by facility type (home-based, center-based, school-age, infant-toddler). Before you begin, consult the Colorado Department of Human Services directly to confirm current licensing requirements, fees, and application procedures. Consider meeting with a Colorado CPA to understand your tax obligations and with an attorney if you need guidance on liability or contracts. This will ensure your specific situation is handled correctly and in full compliance with current Colorado law.